Defending pair accused of fraud expected to cost $600,000

Don Murphy reads a newspaper over breakfast at Java John's Cafe in downtown Nevada City. A long, involved fraud case is straining the resources of Nevada County, which has fewer than 100,000 residents.

Don Murphy reads a newspaper over breakfast at Java John's Cafe in downtown Nevada City. A long, involved fraud case is straining the resources of Nevada County, which has fewer than 100,000 residents.

Photo: Max Whittaker/Prime, Special To The Chronicle

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Greg Klein was hired by the county to be the public defender for Susan Laferte. "I don't like the constant report about every dollar," Klein says.

Greg Klein was hired by the county to be the public defender for Susan Laferte. "I don't like the constant report about every dollar," Klein says.

Officials in Nevada City, the county seat of Nevada County, say the state should help rural counties with expensive cases.

Officials in Nevada City, the county seat of Nevada County, say the state should help rural counties with expensive cases.

Photo: Max Whittaker/Prime, Special To The Chronicle

Nevada County wants state's help with mounting legal bill

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In the Sierra foothills, where Gold Rush history still sparkles, Nevada County taxpayers fear their small, rural region is being drained of critical funding to help two residents fight state fraud charges.

Now county officials are turning to lawmakers for help because the law isn't on their side.

Two years ago, the state attorney general charged four people associated with a Grass Valley real estate company of cheating investors of $2.3 million and committing other crimes. Claiming they were broke, Philip Lester, 66, and his sister Susan Laferte, 60, were each provided with public defenders.

Nevada County estimates that defending the pair will cost $600,000 - money that otherwise could be spent on law enforcement or restoring public employee positions cut during the recession, said Ryan Gruver, management analyst with the county's executive office. The county has already spent $200,000, a cost updated regularly on the county's website. The trial is scheduled for October.

"When you have a small county like Nevada County going against the state attorney general, it's a significant impact," Gruver said. "Our feeling is there is a David-and-Goliath situation where Nevada County is being asked to put its resources against the state of California and the attorney general's office. ... County taxpayers are paying for this."

A 50-year-old legal tenet established by the U.S. Supreme Court guarantees a person's right to an attorney in state criminal cases if they can't pay for one themselves.

Under California law, counties must pay the legal bills for indigent defendants charged with a felony or misdemeanor. If it's a homicide case - generally more expensive - counties can apply for state reimbursement to ease the impact to their budgets and to ensure they don't skimp on defending suspects.

Call to expand policy

Nevada County officials say that policy should be expanded to include other complex cases - like the alleged Ponzi scheme now threatening their coffers. The county has just under 100,000 residents and a $65 million general fund budget.

"It seems like something that should be fixed," said Sen. Ted Gaines, R-Roseville, who is carrying legislation to allow counties to be reimbursed for public defender costs in cases brought by the attorney general. SB16 is sponsored by Nevada County.

"There are a lot of people who were harmed, and we want to make sure justice is done," Gaines said. "I see this as a critical aspect to make sure the court system is working, especially in the smaller counties where you won't find the kind of resources you find in larger counties."

Attorney General Kamala Harris announced in 2012 that four suspects involved in a Grass Valley real estate company had been arrested and charged with securities fraud, conspiracy and elder abuse for their alleged involvement in a scheme that bilked dozens of investors, many of them elderly, of more than $2.3 million over eight years.Lester and Laferte were charged with 66 felony counts of elder abuse, securities fraud and conspiracy.

Both have pleaded not guilty. Charges were later dropped against Lester's wife, Ellen Lester, and another real estate executive, Jonathan Blinder.

Investors misled, state says

The attorney general's office accused Gold Country Lenders of misleading investors about what their money would be used for. The state said Philip Lester, the company's chief executive officer, and Laferte, its chief financial officer, did not disclose the company's conflicting financial interests in some properties and that a land-development deal required significant toxic waste cleanup.

Investors' complaints prompted the state's investigation, which is being prosecuted by the attorney general's Mortgage Fraud Strike Force.

"There wasn't criminal activity on the part of my client," said Greg Klein, a private Nevada City attorney hired by the county to be Laferte's public defender. "This is a bunch of rich people going after a formerly rich person."

Klein said he's concerned that county officials' focus on the cost of the case - particularly their portrayal that it's hurting taxpayers - could taint the jury pool and lead to an increased price tag if the trial is forced to relocate.

"I don't like the constant report about every dollar," Klein said.

Mary Beth Acton, a private attorney appointed by the court to represent Lester, said there are 865,000 pages of documents in the case, half of which she received in February.

"There is a lot of stuff to go through," Acton said. "They want to know why it's costing money? ... Well, OK. I dare anyone to read that in that short amount of time. You have to go through it; you can't just guess."

Retroactive reimbursement

If Gaines' bill is approved by the Legislature, Nevada County could apply for retroactive reimbursement for expenses associated with the case. The bill, introduced last year, passed through the Senate in January and awaits the Assembly's consideration when the Legislature returns from summer recess Monday.

Meanwhile, lobbyists for rural counties say there would be a second set of victims in the huge fraud case if lawmakers don't pass the bill: rural Californians.

"It's a huge hit to Nevada County," said Paul Smith, senior legislative advocate for the Rural County Representatives of California. "This translates into difficult budget decisions. At some point it will affect residents in Nevada County."